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Do Active Military Pay Taxes

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Do Active Military Pay Taxes

Do active military pay taxes 3. Do active military pay taxes   Reporting Rental Income, Expenses, and Losses Table of Contents Which Forms To UseSchedule E (Form 1040) Schedule C (Form 1040), Profit or Loss From Business Qualified Joint Venture Limits on Rental LossesAt-Risk Rules Passive Activity Limits Casualties and Thefts Example Figuring the net income or loss for a residential rental activity may involve more than just listing the income and deductions on Schedule E (Form 1040). Do active military pay taxes There are activities which do not qualify to use Schedule E, such as when the activity is not engaged in to make a profit or when you provide substantial services in conjunction with the property. Do active military pay taxes There are also the limitations which may need to be applied if you have a net loss on Schedule E. Do active military pay taxes There are two: (1) the limitation based on the amount of investment you have at risk in your rental activity, and (2) the special limits imposed on passive activities. Do active military pay taxes You may also have a gain or loss related to your rental property from a casualty or theft. Do active military pay taxes This is considered separately from the income and expense information you report on Schedule E. Do active military pay taxes Which Forms To Use The basic form for reporting residential rental income and expenses is Schedule E (Form 1040). Do active military pay taxes However, do not use that schedule to report a not-for-profit activity. Do active military pay taxes See Not Rented for Profit , in chapter 4. Do active military pay taxes There are also other rental situations in which forms other than Schedule E would be used. Do active military pay taxes Schedule E (Form 1040) If you rent buildings, rooms, or apartments, and provide basic services such as heat and light, trash collection, etc. Do active military pay taxes , you normally report your rental income and expenses on Schedule E, Part I. Do active military pay taxes List your total income, expenses, and depreciation for each rental property. Do active military pay taxes Be sure to enter the number of fair rental and personal use days on line 2. Do active military pay taxes If you have more than three rental or royalty properties, complete and attach as many Schedules E as are needed to list the properties. Do active military pay taxes Complete lines 1 and 2 for each property. Do active military pay taxes However, fill in lines 23a through 26 on only one Schedule E. Do active military pay taxes On Schedule E, page 1, line 18, enter the depreciation you are claiming for each property. Do active military pay taxes To find out if you need to attach Form 4562, see Form 4562 , later. Do active military pay taxes If you have a loss from your rental real estate activity, you also may need to complete one or both of the following forms. Do active military pay taxes Form 6198, At-Risk Limitations. Do active military pay taxes See At-Risk Rules , later. Do active military pay taxes Also see Publication 925. Do active military pay taxes Form 8582, Passive Activity Loss Limitations. Do active military pay taxes See Passive Activity Limits , later. Do active military pay taxes Page 2 of Schedule E is used to report income or loss from partnerships, S corporations, estates, trusts, and real estate mortgage investment conduits. Do active military pay taxes If you need to use page 2 of Schedule E, be sure to use page 2 of the same Schedule E you used to enter your rental activity on page 1. Do active military pay taxes Also, include the amount from line 26 (Part I) in the “Total income or (loss)” on line 41 (Part V). Do active military pay taxes Form 4562. Do active military pay taxes   You must complete and attach Form 4562 for rental activities only if you are claiming: Depreciation, including the special depreciation allowance, on property placed in service during 2013; Depreciation on listed property (such as a car), regardless of when it was placed in service; or Any other car expenses, including the standard mileage rate or lease expenses. Do active military pay taxes Otherwise, figure your depreciation on your own worksheet. Do active military pay taxes You do not have to attach these computations to your return, but you should keep them in your records for future reference. Do active military pay taxes   See Publication 946 for information on preparing Form 4562. Do active military pay taxes Schedule C (Form 1040), Profit or Loss From Business Generally, Schedule C is used when you provide substantial services in conjunction with the property or the rental is part of a trade or business as a real estate dealer. Do active military pay taxes Providing substantial services. Do active military pay taxes   If you provide substantial services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service, you report your rental income and expenses on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. Do active military pay taxes Use Form 1065, U. Do active military pay taxes S. Do active military pay taxes Return of Partnership Income, if your rental activity is a partnership (including a partnership with your spouse unless it is a qualified joint venture). Do active military pay taxes Substantial services do not include the furnishing of heat and light, cleaning of public areas, trash collection, etc. Do active military pay taxes For information, see Publication 334, Tax Guide for Small Business. Do active military pay taxes Also, you may have to pay self-employment tax on your rental income using Schedule SE (Form 1040), Self-Employment Tax. Do active military pay taxes For a discussion of “substantial services,” see Real Estate Rents in Publication 334, chapter 5. Do active military pay taxes Qualified Joint Venture If you and your spouse each materially participate (see Material participation under Passive Activity Limits, later) as the only members of a jointly owned and operated real estate business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership. Do active military pay taxes This election, in most cases, will not increase the total tax owed on the joint return, but it does give each of you credit for social security earnings on which retirement benefits are based and for Medicare coverage if your rental income is subject to self-employment tax. Do active military pay taxes If you make this election, you must report rental real estate income on Schedule E (or Schedule C if you provide substantial services). Do active military pay taxes You will not be required to file Form 1065 for any year the election is in effect. Do active military pay taxes Rental real estate income generally is not included in net earnings from self-employment subject to self-employment tax and generally is subject to the passive activity limits. Do active military pay taxes If you and your spouse filed a Form 1065 for the year prior to the election, the partnership terminates at the end of the tax year immediately preceding the year the election takes effect. Do active military pay taxes For more information on qualified joint ventures, go to IRS. Do active military pay taxes gov and enter “qualified joint venture” in the search box. Do active military pay taxes Limits on Rental Losses If you have a loss from your rental real estate activity, two sets of rules may limit the amount of loss you can deduct. Do active military pay taxes You must consider these rules in the order shown below. Do active military pay taxes Both are discussed in this section. Do active military pay taxes At-risk rules. Do active military pay taxes These rules are applied first if there is investment in your rental real estate activity for which you are not at risk. Do active military pay taxes This applies only if the real property was placed in service after 1986. Do active military pay taxes Passive activity limits. Do active military pay taxes Generally, rental real estate activities are considered passive activities and losses are not deductible unless you have income from other passive activities to offset them. Do active military pay taxes However, there are exceptions. Do active military pay taxes At-Risk Rules You may be subject to the at-risk rules if you have: A loss from an activity carried on as a trade or business or for the production of income, and Amounts invested in the activity for which you are not fully at risk. Do active military pay taxes Losses from holding real property (other than mineral property) placed in service before 1987 are not subject to the at-risk rules. Do active military pay taxes In most cases, any loss from an activity subject to the at-risk rules is allowed only to the extent of the total amount you have at risk in the activity at the end of the tax year. Do active military pay taxes You are considered at risk in an activity to the extent of cash and the adjusted basis of other property you contributed to the activity and certain amounts borrowed for use in the activity. Do active military pay taxes Any loss that is disallowed because of the at-risk limits is treated as a deduction from the same activity in the next tax year. Do active military pay taxes See Publication 925 for a discussion of the at-risk rules. Do active military pay taxes Form 6198. Do active military pay taxes   If you are subject to the at-risk rules, file Form 6198, At-Risk Limitations, with your tax return. Do active military pay taxes Passive Activity Limits In most cases, all rental real estate activities (except those of certain real estate professionals, discussed later) are passive activities. Do active military pay taxes For this purpose, a rental activity is an activity from which you receive income mainly for the use of tangible property, rather than for services. Do active military pay taxes For a discussion of activities that are not considered rental activities, see Rental Activities in Publication 925. Do active military pay taxes Deductions or losses from passive activities are limited. Do active military pay taxes You generally cannot offset income, other than passive income, with losses from passive activities. Do active military pay taxes Nor can you offset taxes on income, other than passive income, with credits resulting from passive activities. Do active military pay taxes Any excess loss or credit is carried forward to the next tax year. Do active military pay taxes Exceptions to the rules for figuring passive activity limits for personal use of a dwelling unit and for rental real estate with active participation are discussed later. Do active military pay taxes For a detailed discussion of these rules, see Publication 925. Do active military pay taxes Real estate professionals. Do active military pay taxes   If you are a real estate professional, complete line 43 of Schedule E. Do active military pay taxes      You qualify as a real estate professional for the tax year if you meet both of the following requirements. Do active military pay taxes More than half of the personal services you perform in all trades or businesses during the tax year are performed in real property trades or businesses in which you materially participate. Do active military pay taxes You perform more than 750 hours of services during the tax year in real property trades or businesses in which you materially participate. Do active military pay taxes If you qualify as a real estate professional, rental real estate activities in which you materially participated are not passive activities. Do active military pay taxes For purposes of determining whether you materially participated in your rental real estate activities, each interest in rental real estate is a separate activity unless you elect to treat all your interests in rental real estate as one activity. Do active military pay taxes   Do not count personal services you perform as an employee in real property trades or businesses unless you are a 5% owner of your employer. Do active military pay taxes You are a 5% owner if you own (or are considered to own) more than 5% of your employer's outstanding stock, or capital or profits interest. Do active military pay taxes   Do not count your spouse's personal services to determine whether you met the requirements listed earlier to qualify as a real estate professional. Do active military pay taxes However, you can count your spouse's participation in an activity in determining if you materially participated. Do active military pay taxes Real property trades or businesses. Do active military pay taxes   A real property trade or business is a trade or business that does any of the following with real property. Do active military pay taxes Develops or redevelops it. Do active military pay taxes Constructs or reconstructs it. Do active military pay taxes Acquires it. Do active military pay taxes Converts it. Do active military pay taxes Rents or leases it. Do active military pay taxes Operates or manages it. Do active military pay taxes Brokers it. Do active military pay taxes Choice to treat all interests as one activity. Do active military pay taxes   If you were a real estate professional and had more than one rental real estate interest during the year, you can choose to treat all the interests as one activity. Do active military pay taxes You can make this choice for any year that you qualify as a real estate professional. Do active military pay taxes If you forgo making the choice for one year, you can still make it for a later year. Do active military pay taxes   If you make the choice, it is binding for the tax year you make it and for any later year that you are a real estate professional. Do active military pay taxes This is true even if you are not a real estate professional in any intervening year. Do active military pay taxes (For that year, the exception for real estate professionals will not apply in determining whether your activity is subject to the passive activity rules. Do active military pay taxes )   See the Instructions for Schedule E for information about making this choice. Do active military pay taxes Material participation. Do active military pay taxes   Generally, you materially participated in an activity for the tax year if you were involved in its operations on a regular, continuous, and substantial basis during the year. Do active military pay taxes For details, see Publication 925 or the Instructions for Schedule C. Do active military pay taxes Participating spouse. Do active military pay taxes   If you are married, determine whether you materially participated in an activity by also counting any participation in the activity by your spouse during the year. Do active military pay taxes Do this even if your spouse owns no interest in the activity or files a separate return for the year. Do active military pay taxes Form 8582. Do active military pay taxes    You may have to complete Form 8582 to figure the amount of any passive activity loss for the current tax year for all activities and the amount of the passive activity loss allowed on your tax return. Do active military pay taxes See Form 8582 not required , later in this chapter, to determine if you must complete Form 8582. Do active military pay taxes   If you are required to complete Form 8582 and are also subject to the at-risk rules, include the amount from Form 6198, line 21 (deductible loss) in column (b) of Form 8582, Worksheet 1 or 3, as required. Do active military pay taxes Exception for Personal Use of Dwelling Unit If you used the rental property as a home during the year, any income, deductions, gain, or loss allocable to such use shall not be taken into account for purposes of the passive activity loss limitation. Do active military pay taxes Instead, follow the rules explained in chapter 5, Personal Use of Dwelling Unit (Including Vacation Home). Do active military pay taxes Exception for Rental Real Estate With Active Participation If you or your spouse actively participated in a passive rental real estate activity, you may be able to deduct up to $25,000 of loss from the activity from your nonpassive income. Do active military pay taxes This special allowance is an exception to the general rule disallowing losses in excess of income from passive activities. Do active military pay taxes Similarly, you may be able to offset credits from the activity against the tax on up to $25,000 of nonpassive income after taking into account any losses allowed under this exception. Do active military pay taxes Example. Do active military pay taxes Jane is single and has $40,000 in wages, $2,000 of passive income from a limited partnership, and $3,500 of passive loss from a rental real estate activity in which she actively participated. Do active military pay taxes $2,000 of Jane's $3,500 loss offsets her passive income. Do active military pay taxes The remaining $1,500 loss can be deducted from her $40,000 wages. Do active military pay taxes The special allowance is not available if you were married, lived with your spouse at any time during the year, and are filing a separate return. Do active military pay taxes Active participation. Do active military pay taxes   You actively participated in a rental real estate activity if you (and your spouse) owned at least 10% of the rental property and you made management decisions or arranged for others to provide services (such as repairs) in a significant and bona fide sense. Do active military pay taxes Management decisions that may count as active participation include approving new tenants, deciding on rental terms, approving expenditures, and other similar decisions. Do active military pay taxes Example. Do active military pay taxes Mike is single and had the following income and losses during the tax year:   Salary $42,300     Dividends 300     Interest 1,400     Rental loss (4,000)   The rental loss was from the rental of a house Mike owned. Do active military pay taxes Mike had advertised and rented the house to the current tenant himself. Do active military pay taxes He also collected the rents, which usually came by mail. Do active military pay taxes All repairs were either made or contracted out by Mike. Do active military pay taxes Although the rental loss is from a passive activity, because Mike actively participated in the rental property management he can use the entire $4,000 loss to offset his other income. Do active military pay taxes Maximum special allowance. Do active military pay taxes   The maximum special allowance is: $25,000 for single individuals and married individuals filing a joint return for the tax year, $12,500 for married individuals who file separate returns for the tax year and lived apart from their spouses at all times during the tax year, and $25,000 for a qualifying estate reduced by the special allowance for which the surviving spouse qualified. Do active military pay taxes   If your modified adjusted gross income (MAGI) is $100,000 or less ($50,000 or less if married filing separately), you can deduct your loss up to the amount specified above. Do active military pay taxes If your MAGI is more than $100,000 (more than $50,000 if married filing separately), your special allowance is limited to 50% of the difference between $150,000 ($75,000 if married filing separately) and your MAGI. Do active military pay taxes   Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance. Do active military pay taxes Modified adjusted gross income (MAGI). Do active military pay taxes   This is your adjusted gross income from Form 1040, U. Do active military pay taxes S. Do active military pay taxes Individual Income Tax Return, line 38, or Form 1040NR, U. Do active military pay taxes S. Do active military pay taxes Nonresident Alien Income Tax Return, line 37, figured without taking into account: The taxable amount of social security or equivalent tier 1 railroad retirement benefits, The deductible contributions to traditional individual retirement accounts (IRAs) and section 501(c)(18) pension plans, The exclusion from income of interest from Series EE and I U. Do active military pay taxes S. Do active military pay taxes savings bonds used to pay higher educational expenses, The exclusion of amounts received under an employer's adoption assistance program, Any passive activity income or loss included on Form 8582, Any rental real estate loss allowed to real estate professionals, Any overall loss from a publicly traded partnership (see Publicly Traded Partnerships (PTPs) in the Instructions for Form 8582), The deduction allowed for one-half of self-employment tax, The deduction allowed for interest paid on student loans, The deduction for qualified tuition and related fees, and The domestic production activities deduction (see the Instructions for Form 8903). Do active military pay taxes Form 8582 not required. Do active military pay taxes   Do not complete Form 8582 if you meet all of the following conditions. Do active military pay taxes Your only passive activities were rental real estate activities in which you actively participated. Do active military pay taxes Your overall net loss from these activities is $25,000 or less ($12,500 or less if married filing separately and you lived apart from your spouse all year). Do active military pay taxes If married filing separately, you lived apart from your spouse all year. Do active military pay taxes You have no prior year unallowed losses from these (or any other passive) activities. Do active military pay taxes You have no current or prior year unallowed credits from passive activities. Do active military pay taxes Your MAGI is $100,000 or less ($50,000 or less if married filing separately and you lived apart from your spouse all year). Do active military pay taxes You do not hold any interest in a rental real estate activity as a limited partner or as a beneficiary of an estate or a trust. Do active military pay taxes   If you meet all of the conditions listed above, your rental real estate activities are not limited by the passive activity rules and you do not have to complete Form 8582. Do active military pay taxes On lines 23a through 23e of your Schedule E, enter the applicable amounts. Do active military pay taxes Casualties and Thefts As a result of a casualty or theft, you may have a loss related to your rental property. Do active military pay taxes You may be able to deduct the loss on your income tax return. Do active military pay taxes Casualty. Do active military pay taxes   This is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Do active military pay taxes Such events include a storm, fire, or earthquake. Do active military pay taxes Theft. Do active military pay taxes   This is defined as the unlawful taking and removing of your money or property with the intent to deprive you of it. Do active military pay taxes Gain from casualty or theft. Do active military pay taxes   It is also possible to have a gain from a casualty or theft if you receive money, including insurance, that is more than your adjusted basis in the property. Do active military pay taxes Generally, you must report this gain. Do active military pay taxes However, under certain circumstances, you may defer paying tax by choosing to postpone reporting the gain. Do active military pay taxes To do this, you generally must buy replacement property within 2 years after the close of the first tax year in which any part of your gain is realized. Do active military pay taxes In certain circumstances, the replacement period can be greater than 2 years; see Replacement Period in Publication 547 for more information. Do active military pay taxes The cost of the replacement property must be equal to or more than the net insurance or other payment you received. Do active military pay taxes More information. Do active military pay taxes   For information on business and nonbusiness casualty and theft losses, see Publication 547. Do active military pay taxes How to report. Do active military pay taxes    If you had a casualty or theft that involved property used in your rental activity, figure the net gain or loss in Section B of Form 4684, Casualties and Thefts. Do active military pay taxes Follow the Instructions for Form 4684 for where to carry your net gain or loss. Do active military pay taxes Example In February 2008, Marie Pfister bought a rental house for $135,000 (house $120,000 and land $15,000) and immediately began renting it out. Do active military pay taxes In 2013, she rented it all 12 months for a monthly rental fee of $1,125. Do active military pay taxes In addition to her rental income of $13,500 (12 x $1,125), Marie had the following expenses. Do active military pay taxes Mortgage interest $8,000 Fire insurance (1-year policy) 250 Miscellaneous repairs 400 Real estate taxes imposed and paid 500 Maintenance 200 Marie depreciates the residential rental property under MACRS GDS. Do active military pay taxes This means using the straight line method over a recovery period of 27. Do active military pay taxes 5 years. Do active military pay taxes She uses Table 2-2d to find her depreciation percentage. Do active military pay taxes Because she placed the property in service in February 2008, she continues to use that row of Table 2-2d. Do active military pay taxes For year 6, the rate is 3. Do active military pay taxes 636%. Do active military pay taxes Marie figures her net rental income or loss for the house as follows: Total rental income received  ($1,125 × 12) $13,500 Minus: Expenses     Mortgage interest $8,000   Fire insurance 250   Miscellaneous repairs 400   Real estate taxes 500   Maintenance 200   Total expenses 9,350 Balance $4,150 Minus: Depreciation ($120,000 x 3. Do active military pay taxes 636%) 4,363 Net rental (loss) for house ($213)       Marie had a net loss for the year. Do active military pay taxes Because she actively participated in her passive rental real estate activity and her loss was less than $25,000, she can deduct the loss on her return. Do active military pay taxes Marie also meets all of the requirements for not having to file Form 8582. Do active military pay taxes She uses Schedule E, Part I, to report her rental income and expenses. Do active military pay taxes She enters her income, expenses, and depreciation for the house in the column for Property A and enters her loss on line 22. Do active military pay taxes Form 4562 is not required. Do active military pay taxes Prev  Up  Next   Home   More Online Publications
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Do active military pay taxes 6. Do active military pay taxes   How To Report Table of Contents Where To ReportGifts. Do active military pay taxes Statutory employees. Do active military pay taxes Vehicle Provided by Your Employer ReimbursementsAccountable Plans Nonaccountable Plans Rules for Independent Contractors and Clients How To Use Per Diem Rate TablesThe Two Substantiation Methods Transition Rules Completing Forms 2106 and 2106-EZInformation on use of cars. Do active military pay taxes Standard mileage rate. Do active military pay taxes Actual expenses. Do active military pay taxes Car rentals. Do active military pay taxes Hours of service limits. Do active military pay taxes Allocating your reimbursement. Do active military pay taxes 1. Do active military pay taxes Limit on meals and entertainment. Do active military pay taxes 2. Do active military pay taxes Limit on miscellaneous itemized deductions. Do active military pay taxes 3. Do active military pay taxes Limit on total itemized deductions. Do active military pay taxes Special Rules This chapter explains where and how to report the expenses discussed in this publication. Do active military pay taxes It discusses reimbursements and how to treat them under accountable and nonaccountable plans. Do active military pay taxes It also explains rules for independent contractors and clients, fee-basis officials, certain performing artists, Armed Forces reservists, and certain disabled employees. Do active military pay taxes The chapter ends with illustrations of how to report travel, entertainment, gift, and car expenses on Forms 2106 and 2106-EZ. Do active military pay taxes Where To Report This section provides general information on where to report the expenses discussed in this publication. Do active military pay taxes Self-employed. Do active military pay taxes   You must report your income and expenses on Schedule C (Form 1040) or Schedule C-EZ (Form 1040) if you are a sole proprietor, or on Schedule F (Form 1040) if you are a farmer. Do active military pay taxes You do not use Form 2106 or 2106-EZ. Do active military pay taxes    If you claim car or truck expenses, you must provide certain information on the use of your vehicle. Do active military pay taxes You provide this information on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Form 4562. Do active military pay taxes   If you file Schedule C (Form 1040): Report your travel expenses, except meals, on line 24a, Report your deductible meals (actual cost or standard meal allowance) and entertainment on line 24b, Report your gift expenses and transportation expenses, other than car expenses, on line 27a, and Report your car expenses on line 9. Do active military pay taxes Complete Part IV of the form unless you have to file Form 4562 for depreciation or amortization. Do active military pay taxes   If you file Schedule C-EZ (Form 1040), report the total of all business expenses on line 2. Do active military pay taxes You can only include 50% of your meals and entertainment in that total. Do active military pay taxes If you include car expenses, you must also complete Part III of the form. Do active military pay taxes    If you file Schedule F (Form 1040): Report your car expenses on line 10. Do active military pay taxes Attach Form 4562 and provide information on the use of your car in Part V of Form 4562. Do active military pay taxes Report all other business expenses discussed in this publication on line 32. Do active military pay taxes You can only include 50% of your meals and entertainment on that line. Do active military pay taxes See your form instructions for more information on how to complete your tax return. Do active military pay taxes Both self-employed and an employee. Do active military pay taxes   If you are both self-employed and an employee, you must keep separate records for each business activity. Do active military pay taxes Report your business expenses for self-employment on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040), as discussed earlier. Do active military pay taxes Report your business expenses for your work as an employee on Form 2106 or 2106-EZ, as discussed next. Do active military pay taxes Employees. Do active military pay taxes    If you are an employee, you generally must complete Form 2106 to deduct your travel, transportation, and entertainment expenses. Do active military pay taxes However, you can use the shorter Form 2106-EZ instead of Form 2106 if you meet all of the following conditions. Do active military pay taxes You are an employee deducting expenses attributable to your job. Do active military pay taxes You were not reimbursed by your employer for your expenses (amounts included in box 1 of your Form W-2 are not considered reimbursements). Do active military pay taxes If you claim car expenses, you use the standard mileage rate. Do active military pay taxes   For more information on how to report your expenses on Forms 2106 and 2106-EZ, see Completing Forms 2106 and 2106-EZ , later. Do active military pay taxes Gifts. Do active military pay taxes   If you did not receive any reimbursements (or the reimbursements were all included in box 1 of your Form W-2), the only business expense you are claiming is for gifts, and the Special Rules discussed later do not apply to you, do not complete Form 2106 or 2106-EZ. Do active military pay taxes Instead, claim the amount of your deductible gifts directly on line 21 of Schedule A (Form 1040). Do active military pay taxes Statutory employees. Do active military pay taxes    If you received a Form W-2 and the “Statutory employee” box in box 13 was checked, report your income and expenses related to that income on Schedule C (Form 1040) or Schedule C-EZ (Form 1040). Do active military pay taxes Do not complete Form 2106 or 2106-EZ. Do active military pay taxes   Statutory employees include full-time life insurance salespersons, certain agent or commission drivers, traveling salespersons, and certain homeworkers. Do active military pay taxes If you are entitled to a reimbursement from your employer but you do not claim it, you cannot claim a deduction for the expenses to which that unclaimed reimbursement applies. Do active military pay taxes Reimbursement for personal expenses. Do active military pay taxes    If your employer reimburses you for nondeductible personal expenses, such as for vacation trips, your employer must report the reimbursement as wage income in box 1 of your Form W-2. Do active military pay taxes You cannot deduct personal expenses. Do active military pay taxes Income-producing property. Do active military pay taxes   If you have travel or transportation expenses related to income-producing property, report your deductible expenses on the form appropriate for that activity. Do active military pay taxes   For example, if you have rental real estate income and expenses, report your expenses on Schedule E (Form 1040), Supplemental Income and Loss. Do active military pay taxes See Publication 527, Residential Rental Property, for more information on the rental of real estate. Do active military pay taxes If you have deductible investment-related transportation expenses, report them on Schedule A (Form 1040), line 23. Do active military pay taxes Vehicle Provided by Your Employer If your employer provides you with a car, you may be able to deduct the actual expenses of operating that car for business purposes. Do active military pay taxes The amount you can deduct depends on the amount that your employer included in your income and the business and personal miles you drove during the year. Do active military pay taxes You cannot use the standard mileage rate. Do active military pay taxes Value reported on Form W-2. Do active military pay taxes   Your employer can figure and report either the actual value of your personal use of the car or the value of the car as if you used it only for personal purposes (100% income inclusion). Do active military pay taxes Your employer must separately state the amount if 100% of the annual lease value was included in your income. Do active military pay taxes If you are unsure of the amount included on your Form W-2, ask your employer. Do active military pay taxes Full value included in your income. Do active military pay taxes   You can deduct the value of the business use of an employer-provided car if your employer reported 100% of the value of the car in your income. Do active military pay taxes On your 2013 Form W-2, the amount of the value will be included in box 1, Wages, tips, other compensation, and box 14. Do active military pay taxes    To claim your expenses, complete Form 2106, Part II, Sections A and C. Do active military pay taxes Enter your actual expenses on line 23 of Section C and include the entire value of the employer-provided car on line 25. Do active military pay taxes Complete the rest of the form. Do active military pay taxes Less than full value included in your income. Do active military pay taxes   If less than the full annual lease value of the car was included on your Form W-2, this means that your Form W-2 only includes the value of your personal use of the car. Do active military pay taxes Do not enter this value on your Form 2106 because it is not deductible. Do active military pay taxes   If you paid any actual costs (that your employer did not provide or reimburse you for) to operate the car, you can deduct the business portion of those costs. Do active military pay taxes Examples of costs that you may have are gas, oil, and repairs. Do active military pay taxes Complete Form 2106, Part II, Sections A and C. Do active military pay taxes Enter your actual costs on line 23 of Section C and leave line 25 blank. Do active military pay taxes Complete the rest of the form. Do active military pay taxes Reimbursements This section explains what to do when you receive an advance or are reimbursed for any of the employee business expenses discussed in this publication. Do active military pay taxes If you received an advance, allowance, or reimbursement for your expenses, how you report this amount and your expenses depends on whether your employer reimbursed you under an accountable plan or a nonaccountable plan. Do active military pay taxes This section explains the two types of plans, how per diem and car allowances simplify proving the amount of your expenses, and the tax treatment of your reimbursements and expenses. Do active military pay taxes It also covers rules for independent contractors. Do active military pay taxes No reimbursement. Do active military pay taxes   You are not reimbursed or given an allowance for your expenses if you are paid a salary or commission with the understanding that you will pay your own expenses. Do active military pay taxes In this situation, you have no reimbursement or allowance arrangement, and you do not have to read this section on reimbursements. Do active military pay taxes Instead, see Completing Forms 2106 and 2106-EZ , later, for information on completing your tax return. Do active military pay taxes Reimbursement, allowance, or advance. Do active military pay taxes   A reimbursement or other expense allowance arrangement is a system or plan that an employer uses to pay, substantiate, and recover the expenses, advances, reimbursements, and amounts charged to the employer for employee business expenses. Do active military pay taxes Arrangements include per diem and car allowances. Do active military pay taxes    A per diem allowance is a fixed amount of daily reimbursement your employer gives you for your lodging, meals, and incidental expenses when you are away from home on business. Do active military pay taxes (The term “ incidental expenses ” is defined in chapter 1 under Standard Meal Allowance. Do active military pay taxes ) A car allowance is an amount your employer gives you for the business use of your car. Do active military pay taxes   Your employer should tell you what method of reimbursement is used and what records you must provide. Do active military pay taxes Employers. Do active military pay taxes   If you are an employer and you reimburse employee business expenses, how you treat this reimbursement on your employee's Form W-2 depends in part on whether you have an accountable plan. Do active military pay taxes Reimbursements treated as paid under an accountable plan, as explained next, are not reported as pay. Do active military pay taxes Reimbursements treated as paid under nonaccountable plans , as explained later, are reported as pay. Do active military pay taxes See Publication 15 (Circular E), Employer's Tax Guide, for information on employee pay. Do active military pay taxes Accountable Plans To be an accountable plan, your employer's reimbursement or allowance arrangement must include all of the following rules: Your expenses must have a business connection — that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer. Do active military pay taxes You must adequately account to your employer for these expenses within a reasonable period of time. Do active military pay taxes You must return any excess reimbursement or allowance within a reasonable period of time. Do active military pay taxes “ Adequate accounting ” and “ returning excess reimbursements ” are discussed later. Do active military pay taxes An excess reimbursement or allowance is any amount you are paid that is more than the business-related expenses that you adequately accounted for to your employer. Do active military pay taxes Reasonable period of time. Do active military pay taxes   The definition of reasonable period of time depends on the facts and circumstances of your situation. Do active military pay taxes However, regardless of the facts and circumstances of your situation, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time. Do active military pay taxes You receive an advance within 30 days of the time you have an expense. Do active military pay taxes You adequately account for your expenses within 60 days after they were paid or incurred. Do active military pay taxes You return any excess reimbursement within 120 days after the expense was paid or incurred. Do active military pay taxes You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement. Do active military pay taxes Employee meets accountable plan rules. Do active military pay taxes   If you meet the three rules for accountable plans, your employer should not include any reimbursements in your income in box 1 of your Form W-2. Do active military pay taxes If your expenses equal your reimbursements, you do not complete Form 2106. Do active military pay taxes You have no deduction since your expenses and reimbursement are equal. Do active military pay taxes    If your employer included reimbursements in box 1 of your Form W-2 and you meet all the rules for accountable plans, ask your employer for a corrected Form W-2. Do active military pay taxes Accountable plan rules not met. Do active military pay taxes   Even though you are reimbursed under an accountable plan, some of your expenses may not meet all three rules. Do active military pay taxes All reimbursements that fail to meet all three rules for accountable plans are generally treated as having been reimbursed under a nonaccountable plan (discussed later). Do active military pay taxes Failure to return excess reimbursements. Do active military pay taxes   If you are reimbursed under an accountable plan, but you fail to return, within a reasonable time, any amounts in excess of the substantiated amounts, the amounts paid in excess of the substantiated expenses are treated as paid under a nonaccountable plan. Do active military pay taxes See Reasonable period of time , earlier, and Returning Excess Reimbursements , later. Do active military pay taxes Reimbursement of nondeductible expenses. Do active military pay taxes   You may be reimbursed under your employer's accountable plan for expenses related to that employer's business, some of which are deductible as employee business expenses and some of which are not deductible. Do active military pay taxes The reimbursements you receive for the nondeductible expenses do not meet rule (1) for accountable plans, and they are treated as paid under a nonaccountable plan. Do active military pay taxes Example. Do active military pay taxes Your employer's plan reimburses you for travel expenses while away from home on business and also for meals when you work late at the office, even though you are not away from home. Do active military pay taxes The part of the arrangement that reimburses you for the nondeductible meals when you work late at the office is treated as paid under a nonaccountable plan. Do active military pay taxes The employer makes the decision whether to reimburse employees under an accountable plan or a nonaccountable plan. Do active military pay taxes If you are an employee who receives payments under a nonaccountable plan, you cannot convert these amounts to payments under an accountable plan by voluntarily accounting to your employer for the expenses and voluntarily returning excess reimbursements to the employer. Do active military pay taxes Adequate Accounting One of the rules for an accountable plan is that you must adequately account to your employer for your expenses. Do active military pay taxes You adequately account by giving your employer a statement of expense, an account book, a diary, or a similar record in which you entered each expense at or near the time you had it, along with documentary evidence (such as receipts) of your travel, mileage, and other employee business expenses. Do active military pay taxes (See Table 5-1 in chapter 5 for details you need to enter in your record and documents you need to prove certain expenses. Do active military pay taxes ) A per diem or car allowance satisfies the adequate accounting requirement under certain conditions. Do active military pay taxes See Per Diem and Car Allowances , later. Do active military pay taxes You must account for all amounts you received from your employer during the year as advances, reimbursements, or allowances. Do active military pay taxes This includes amounts you charged to your employer by credit card or other method. Do active military pay taxes You must give your employer the same type of records and supporting information that you would have to give to the IRS if the IRS questioned a deduction on your return. Do active military pay taxes You must pay back the amount of any reimbursement or other expense allowance for which you do not adequately account or that is more than the amount for which you accounted. Do active military pay taxes Per Diem and Car Allowances If your employer reimburses you for your expenses using a per diem or a car allowance, you can generally use the allowance as proof for the amount of your expenses. Do active military pay taxes A per diem or car allowance satisfies the adequate accounting requirements for the amount of your expenses only if all the following conditions apply. Do active military pay taxes Your employer reasonably limits payments of your expenses to those that are ordinary and necessary in the conduct of the trade or business. Do active military pay taxes The allowance is similar in form to and not more than the federal rate (defined later). Do active military pay taxes You prove the time (dates), place, and business purpose of your expenses to your employer (as explained in Table 5-1 ) within a reasonable period of time. Do active military pay taxes You are not related to your employer (as defined next). Do active military pay taxes If you are related to your employer, you must be able to prove your expenses to the IRS even if you have already adequately accounted to your employer and returned any excess reimbursement. Do active military pay taxes If the IRS finds that an employer's travel allowance practices are not based on reasonably accurate estimates of travel costs (including recognition of cost differences in different areas for per diem amounts), you will not be considered to have accounted to your employer. Do active military pay taxes In this case, you must be able to prove your expenses to the IRS. Do active military pay taxes Related to employer. Do active military pay taxes   You are related to your employer if: Your employer is your brother or sister, half brother or half sister, spouse, ancestor, or lineal descendant, Your employer is a corporation in which you own, directly or indirectly, more than 10% in value of the outstanding stock, or Certain relationships (such as grantor, fiduciary, or beneficiary) exist between you, a trust, and your employer. Do active military pay taxes You may be considered to indirectly own stock, for purposes of (2), if you have an interest in a corporation, partnership, estate, or trust that owns the stock or if a member of your family or your partner owns the stock. Do active military pay taxes The federal rate. Do active military pay taxes   The federal rate can be figured using any one of the following methods. Do active military pay taxes For per diem amounts: The regular federal per diem rate. Do active military pay taxes The standard meal allowance. Do active military pay taxes The high-low rate. Do active military pay taxes For car expenses: The standard mileage rate. Do active military pay taxes A fixed and variable rate (FAVR). Do active military pay taxes    For per diem amounts, use the rate in effect for the area where you stop for sleep or rest. Do active military pay taxes Regular federal per diem rate. Do active military pay taxes   The regular federal per diem rate is the highest amount that the federal government will pay to its employees for lodging, meals, and incidental expenses (or meals and incidental expenses only) while they are traveling away from home in a particular area. Do active military pay taxes The rates are different for different locations. Do active military pay taxes Your employer should have these rates available. Do active military pay taxes You can also find federal per diem rates at www. Do active military pay taxes gsa. Do active military pay taxes gov/perdiem. Do active military pay taxes The standard meal allowance. Do active military pay taxes   The standard meal allowance (discussed in chapter 1) is the federal rate for meals and incidental expenses (M&IE). Do active military pay taxes The rate for most small localities in the United States is $46 a day. Do active military pay taxes Most major cities and many other localities qualify for higher rates. Do active military pay taxes You can find this information on the Internet at www. Do active military pay taxes gsa. Do active military pay taxes gov/perdiem. Do active military pay taxes   You receive an allowance only for meals and incidental expenses when your employer does one of the following. Do active military pay taxes Provides you with lodging (furnishes it in kind). Do active military pay taxes Reimburses you, based on your receipts, for the actual cost of your lodging. Do active military pay taxes Pays the hotel, motel, etc. Do active military pay taxes , directly for your lodging. Do active military pay taxes Does not have a reasonable belief that you had (or will have) lodging expenses, such as when you stay with friends or relatives or sleep in the cab of your truck. Do active military pay taxes Figures the allowance on a basis similar to that used in computing your compensation, such as number of hours worked or miles traveled. Do active military pay taxes High-low rate. Do active military pay taxes   This is a simplified method of computing the federal per diem rate for travel within the continental United States. Do active military pay taxes It eliminates the need to keep a current list of the per diem rates for each city. Do active military pay taxes   Under the high-low method, the per diem amount for travel during January through September of 2013 is $242 (including $65 for M&IE) for certain high-cost locations. Do active military pay taxes All other areas have a per diem amount of $163 (including $52 for M&IE). Do active military pay taxes For more information, see Notice 2012-63, which can be found on the Internet at www. Do active military pay taxes irs. Do active military pay taxes gov/irb/2012-42_IRB/ar12. Do active military pay taxes html. Do active military pay taxes    Effective October 1, 2013, the per diem rate for certain high-cost locations increased to $251 (including $65 for M&IE). Do active military pay taxes The rate for all other locations increased to $170 (including $52 for M&IE). Do active military pay taxes Employers who did not use the high-low method during the first 9 months of 2013 cannot begin to use it before 2014. Do active military pay taxes For more information, see Notice 2013-65, which can be found on the Internet at www. Do active military pay taxes irs. Do active military pay taxes gov/pub/irs-drop/n-13–65. Do active military pay taxes pdf and Revenue Procedure 2011-47 at www. Do active military pay taxes irs. Do active military pay taxes gov/irb/2011-42_IRB/ar12. Do active military pay taxes html. Do active military pay taxes Prorating the standard meal allowance on partial days of travel. Do active military pay taxes   The standard meal allowance is for a full 24-hour day of travel. Do active military pay taxes If you travel for part of a day, such as on the days you depart and return, you must prorate the full-day M&IE rate. Do active military pay taxes This rule also applies if your employer uses the regular federal per diem rate or the high-low rate. Do active military pay taxes   You can use either of the following methods to figure the federal M&IE for that day. Do active military pay taxes Method 1: For the day you depart, add 3/4 of the standard meal allowance amount for that day. Do active military pay taxes For the day you return, add 3/4 of the standard meal allowance amount for the preceding day. Do active military pay taxes Method 2: Prorate the standard meal allowance using any method you consistently apply in accordance with reasonable business practice. Do active military pay taxes For example, an employer can treat 2 full days of per diem (that includes M&IE) paid for travel away from home from 9 a. Do active military pay taxes m. Do active military pay taxes of one day to 5 p. Do active military pay taxes m. Do active military pay taxes of the next day as being no more than the federal rate. Do active military pay taxes This is true even though a federal employee would be limited to a reimbursement of M&IE for only 1½ days of the federal M&IE rate. Do active military pay taxes The standard mileage rate. Do active military pay taxes   This is a set rate per mile that you can use to compute your deductible car expenses. Do active military pay taxes For 2013, the standard mileage rate for the cost of operating your car for business use is 56½ cents per mile. Do active military pay taxes Fixed and variable rate (FAVR). Do active military pay taxes   This is an allowance your employer may use to reimburse your car expenses. Do active military pay taxes Under this method, your employer pays an allowance that includes a combination of payments covering fixed and variable costs, such as a cents-per-mile rate to cover your variable operating costs (such as gas, oil, etc. Do active military pay taxes ) plus a flat amount to cover your fixed costs (such as depreciation (or lease payments), insurance, etc. Do active military pay taxes ). Do active military pay taxes If your employer chooses to use this method, your employer will request the necessary records from you. Do active military pay taxes Reporting your expenses with a per diem or car allowance. Do active military pay taxes   If your reimbursement is in the form of an allowance received under an accountable plan, the following facts affect your reporting. Do active military pay taxes The federal rate. Do active military pay taxes Whether the allowance or your actual expenses were more than the federal rate. Do active military pay taxes The following discussions explain where to report your expenses depending upon how the amount of your allowance compares to the federal rate. Do active military pay taxes Allowance less than or equal to the federal rate. Do active military pay taxes   If your allowance is less than or equal to the federal rate, the allowance will not be included in box 1 of your Form W-2. Do active military pay taxes You do not need to report the related expenses or the allowance on your return if your expenses are equal to or less than the allowance. Do active military pay taxes   However, if your actual expenses are more than your allowance, you can complete Form 2106 and deduct the excess amount on Schedule A (Form 1040). Do active military pay taxes If you are using actual expenses, you must be able to prove to the IRS the total amount of your expenses and reimbursements for the entire year. Do active military pay taxes If you are using the standard meal allowance or the standard mileage rate, you do not have to prove that amount. Do active military pay taxes Example 1. Do active military pay taxes In April, Jeremy takes a 2-day business trip to Denver. Do active military pay taxes The federal rate for Denver is $215 per day. Do active military pay taxes As required by his employer's accountable plan, he accounts for the time (dates), place, and business purpose of the trip. Do active military pay taxes His employer reimburses him $215 a day ($430 total) for living expenses. Do active military pay taxes Jeremy's living expenses in Denver are not more than $215 a day. Do active military pay taxes Jeremy's employer does not include any of the reimbursement on his Form W-2 and Jeremy does not deduct the expenses on his return. Do active military pay taxes Example 2. Do active military pay taxes In June, Matt takes a 2-day business trip to Boston. Do active military pay taxes Matt's employer uses the high-low method to reimburse employees. Do active military pay taxes Since Boston is a high-cost area, Matt is given an advance of $242 a day ($484 total) for his lodging, meals, and incidental expenses. Do active military pay taxes Matt's actual expenses totaled $700. Do active military pay taxes Since Matt's $700 of expenses are more than his $484 advance, he includes the excess expenses when he itemizes his deductions. Do active military pay taxes Matt completes Form 2106 (showing all of his expenses and reimbursements). Do active military pay taxes He must also allocate his reimbursement between his meals and other expenses as discussed later under Completing Forms 2106 and 2106-EZ . Do active military pay taxes Example 3. Do active military pay taxes Nicole drives 10,000 miles in 2013 for business. Do active military pay taxes Under her employer's accountable plan, she accounts for the time (dates), place, and business purpose of each trip. Do active military pay taxes Her employer pays her a mileage allowance of 40 cents a mile. Do active military pay taxes Since Nicole's $5,650 expense computed under the standard mileage rate (10,000 miles x 56½ cents) is more than her $4,000 reimbursement (10,000 miles × 40 cents), she itemizes her deductions to claim the excess expense. Do active military pay taxes Nicole completes Form 2106 (showing all her expenses and reimbursements) and enters $1,650 ($5,650 − $4,000) as an itemized deduction. Do active military pay taxes Allowance more than the federal rate. Do active military pay taxes   If your allowance is more than the federal rate, your employer must include the allowance amount up to the federal rate in box 12 of your Form W-2. Do active military pay taxes This amount is not taxable. Do active military pay taxes However, the excess allowance will be included in box 1 of your Form W-2. Do active military pay taxes You must report this part of your allowance as if it were wage income. Do active military pay taxes   If your actual expenses are less than or equal to the federal rate, you do not complete Form 2106 or claim any of your expenses on your return. Do active military pay taxes   However, if your actual expenses are more than the federal rate, you can complete Form 2106 and deduct those excess expenses. Do active military pay taxes You must report on Form 2106 your reimbursements up to the federal rate (as shown in box 12 of your Form W-2) and all your expenses. Do active military pay taxes You should be able to prove these amounts to the IRS. Do active military pay taxes Example 1. Do active military pay taxes Laura lives and works in Austin. Do active military pay taxes In July her employer sent her to Albuquerque for 4 days on business. Do active military pay taxes Laura's employer paid the hotel directly for her lodging and reimbursed Laura $65 a day ($260 total) for meals and incidental expenses. Do active military pay taxes Laura's actual meal expenses were not more than the federal rate for Albuquerque, which is $56 per day. Do active military pay taxes Table 6-1. Do active military pay taxes Reporting Travel, Entertainment, Gift, and Car Expenses and Reimbursements IF the type of reimbursement (or  other expense allowance)  arrangement is under: THEN the employer reports on Form W-2: AND the employee reports on  Form 2106: * An accountable plan with: Actual expense reimbursement: Adequate accounting made and excess returned. Do active military pay taxes No amount. Do active military pay taxes No amount. Do active military pay taxes Actual expense reimbursement: Adequate accounting and return of excess both required but excess not returned. Do active military pay taxes The excess amount as wages in box 1. Do active military pay taxes No amount. Do active military pay taxes Per diem or mileage allowance up to the federal rate: Adequate accounting made and excess returned. Do active military pay taxes No amount. Do active military pay taxes All expenses and reimbursements only if excess expenses are claimed. Do active military pay taxes Otherwise, form is not filed. Do active military pay taxes Per diem or mileage allowance up to the federal rate: Adequate accounting and return of excess both required but excess not returned. Do active military pay taxes The excess amount as wages in box 1. Do active military pay taxes The amount up to the federal rate is reported only in box 12—it is not reported in box 1. Do active military pay taxes No amount. Do active military pay taxes Per diem or mileage allowance exceeds the federal rate: Adequate accounting up to the federal rate only and excess not returned. Do active military pay taxes The excess amount as wages in box 1. Do active military pay taxes The amount up to the federal rate is reported only in box 12—it is not reported in box 1. Do active military pay taxes All expenses (and reimbursements reported on Form W-2, box 12) only if expenses in excess of the federal rate are claimed. Do active military pay taxes Otherwise, form is not filed. Do active military pay taxes A nonaccountable plan with: Either adequate accounting or return of excess, or both, not required by plan. Do active military pay taxes The entire amount as wages in box 1. Do active military pay taxes All expenses. Do active military pay taxes No reimbursement plan: The entire amount as wages in box 1. Do active military pay taxes All expenses. Do active military pay taxes * You may be able to use Form 2106-EZ. Do active military pay taxes See Completing Forms 2106 and 2106-EZ . Do active military pay taxes Her employer included the $36 that was more than the federal rate (($65 − $56) × 4) in box 1 of Laura's Form W-2. Do active military pay taxes Her employer shows $224 ($56 a day × 4) in box 12 of her Form W-2. Do active military pay taxes This amount is not included in Laura's income. Do active military pay taxes Laura does not have to complete Form 2106; however, she must include the $36 in her gross income as wages (by reporting the total amount shown in box 1 of her Form W-2). Do active military pay taxes Example 2. Do active military pay taxes Joe also lives in Austin and works for the same employer as Laura. Do active military pay taxes In May the employer sent Joe to San Diego for 4 days and paid the hotel directly for Joe's hotel bill. Do active military pay taxes The employer reimbursed Joe $75 a day for his meals and incidental expenses. Do active military pay taxes The federal rate for San Diego is $71 a day. Do active military pay taxes Joe can prove that his actual meal expenses totaled $380. Do active military pay taxes His employer's accountable plan will not pay more than $75 a day for travel to San Diego, so Joe does not give his employer the records that prove that he actually spent $380. Do active military pay taxes However, he does account for the time, place, and business purpose of the trip. Do active military pay taxes This is Joe's only business trip this year. Do active military pay taxes Joe was reimbursed $300 ($75 × 4 days), which is $16 more than the federal rate of $284 ($71 × 4 days). Do active military pay taxes The employer includes the $16 as income on Joe's Form W-2 in box 1. Do active military pay taxes The employer also enters $284 in box 12 of Joe's Form W-2. Do active military pay taxes Joe completes Form 2106 to figure his deductible expenses. Do active military pay taxes He enters the total of his actual expenses for the year ($380) on Form 2106. Do active military pay taxes He also enters the reimbursements that were not included in his income ($284). Do active military pay taxes His total deductible expense, before the 50% limit, is $96. Do active military pay taxes After he figures the 50% limit on his unreimbursed meals and entertainment, he will include the balance, $48, as an itemized deduction. Do active military pay taxes Example 3. Do active military pay taxes Debbie drives 10,000 miles in 2013 for business. Do active military pay taxes Under her employer's accountable plan, she gets reimbursed 60 cents a mile, which is more than the standard mileage rate. Do active military pay taxes Her total reimbursement is $6,000. Do active military pay taxes Debbie's employer must include the reimbursement amount up to the standard mileage rate, $5,650 (10,000 × 56½ cents), in box 12 of her Form W-2. Do active military pay taxes That amount is not taxable. Do active military pay taxes Her employer must also include $350 ($6,000 − $5,650) in box 1 of her Form W-2. Do active military pay taxes This is the reimbursement that is more than the standard mileage rate. Do active military pay taxes If Debbie's expenses are equal to or less than the standard mileage rate, she would not complete Form 2106. Do active military pay taxes If her expenses are more than the standard mileage rate, she would complete Form 2106 and report her total expenses and reimbursement (shown in box 12 of her Form W-2). Do active military pay taxes She would then claim the excess expenses as an itemized deduction. Do active military pay taxes Returning Excess Reimbursements Under an accountable plan, you are required to return any excess reimbursement or other expense allowances for your business expenses to the person paying the reimbursement or allowance. Do active military pay taxes Excess reimbursement means any amount for which you did not adequately account within a reasonable period of time. Do active military pay taxes For example, if you received a travel advance and you did not spend all the money on business-related expenses or you do not have proof of all your expenses, you have an excess reimbursement. Do active military pay taxes “ Adequate accounting ” and “ reasonable period of time ” were discussed earlier in this chapter. Do active military pay taxes Travel advance. Do active military pay taxes   You receive a travel advance if your employer provides you with an expense allowance before you actually have the expense, and the allowance is reasonably expected to be no more than your expense. Do active military pay taxes Under an accountable plan, you are required to adequately account to your employer for this advance and to return any excess within a reasonable period of time. Do active military pay taxes   If you do not adequately account for or do not return any excess advance within a reasonable period of time, the amount you do not account for or return will be treated as having been paid under a nonaccountable plan (discussed later). Do active military pay taxes Unproved amounts. Do active military pay taxes   If you do not prove that you actually traveled on each day for which you received a per diem or car allowance (proving the elements described in Table 5-1 ), you must return this unproved amount of the travel advance within a reasonable period of time. Do active military pay taxes If you do not do this, the unproved amount will be considered paid under a nonaccountable plan (discussed later). Do active military pay taxes Per diem allowance more than federal rate. Do active military pay taxes   If your employer's accountable plan pays you an allowance that is higher than the federal rate, you do not have to return the difference between the two rates for the period you can prove business-related travel expenses. Do active military pay taxes However, the difference will be reported as wages on your Form W-2. Do active military pay taxes This excess amount is considered paid under a nonaccountable plan (discussed later). Do active military pay taxes Example. Do active military pay taxes Your employer sends you on a 5-day business trip to Phoenix in March 2013 and gives you a $400 ($80 × 5 days) advance to cover your meals and incidental expenses. Do active military pay taxes The federal per diem for meals and incidental expenses for Phoenix is $71. Do active military pay taxes Your trip lasts only 3 days. Do active military pay taxes Under your employer's accountable plan, you must return the $160 ($80 × 2 days) advance for the 2 days you did not travel. Do active military pay taxes For the 3 days you did travel you do not have to return the $27 difference between the allowance you received and the federal rate for Phoenix (($80 − $71) × 3 days). Do active military pay taxes However, the $27 will be reported on your Form W-2 as wages. Do active military pay taxes Nonaccountable Plans A nonaccountable plan is a reimbursement or expense allowance arrangement that does not meet one or more of the three rules listed earlier under Accountable Plans. Do active military pay taxes In addition, even if your employer has an accountable plan, the following payments will be treated as being paid under a nonaccountable plan: Excess reimbursements you fail to return to your employer, and Reimbursement of nondeductible expenses related to your employer's business. Do active military pay taxes See Reimbursement of nondeductible expenses , earlier, under Accountable Plans. Do active military pay taxes An arrangement that repays you for business expenses by reducing the amount reported as your wages, salary, or other pay will be treated as a nonaccountable plan. Do active military pay taxes This is because you are entitled to receive the full amount of your pay whether or not you have any business expenses. Do active military pay taxes If you are not sure if the reimbursement or expense allowance arrangement is an accountable or nonaccountable plan, ask your employer. Do active military pay taxes Reporting your expenses under a nonaccountable plan. Do active military pay taxes   Your employer will combine the amount of any reimbursement or other expense allowance paid to you under a nonaccountable plan with your wages, salary, or other pay. Do active military pay taxes Your employer will report the total in box 1 of your Form W-2. Do active military pay taxes    You must complete Form 2106 or 2106-EZ and itemize your deductions to deduct your expenses for travel, transportation, meals, or entertainment. Do active military pay taxes Your meal and entertainment expenses will be subject to the 50% limit discussed in chapter 2. Do active military pay taxes Also, your total expenses will be subject to the 2%-of-adjusted-gross-income limit that applies to most miscellaneous itemized deductions. Do active military pay taxes Example 1. Do active military pay taxes Kim's employer gives her $1,000 a month ($12,000 total for the year) for her business expenses. Do active military pay taxes Kim does not have to provide any proof of her expenses to her employer, and Kim can keep any funds that she does not spend. Do active military pay taxes Kim is being reimbursed under a nonaccountable plan. Do active military pay taxes Her employer will include the $12,000 on Kim's Form W-2 as if it were wages. Do active military pay taxes If Kim wants to deduct her business expenses, she must complete Form 2106 or 2106-EZ and itemize her deductions. Do active military pay taxes Example 2. Do active military pay taxes Kevin is paid $2,000 a month by his employer. Do active military pay taxes On days that he travels away from home on business, his employer designates $50 a day of his salary as paid to reimburse his travel expenses. Do active military pay taxes Because his employer would pay Kevin his monthly salary whether or not he was traveling away from home, the arrangement is a nonaccountable plan. Do active military pay taxes No part of the $50 a day designated by his employer is treated as paid under an accountable plan. Do active military pay taxes Rules for Independent Contractors and Clients This section provides rules for independent contractors who incur expenses on behalf of a client or customer. Do active military pay taxes The rules cover the reporting and substantiation of certain expenses discussed in this publication, and they affect both independent contractors and their clients or customers. Do active military pay taxes You are considered an independent contractor if you are self-employed and you perform services for a customer or client. Do active military pay taxes Accounting to Your Client If you received a reimbursement or an allowance for travel, entertainment, or gift expenses that you incurred on behalf of a client, you should provide an adequate accounting of these expenses to your client. Do active military pay taxes If you do not account to your client for these expenses, you must include any reimbursements or allowances in income. Do active military pay taxes You must keep adequate records of these expenses whether or not you account to your client for these expenses. Do active military pay taxes If you do not separately account for and seek reimbursement for meals and entertainment in connection with providing services for a client, you are subject to the 50% limit on those expenses. Do active military pay taxes See 50% Limit in chapter 2. Do active military pay taxes Adequate accounting. Do active military pay taxes   As a self-employed person, you adequately account by reporting your actual expenses. Do active military pay taxes You should follow the recordkeeping rules in chapter 5 . Do active military pay taxes How to report. Do active military pay taxes   For information on how to report expenses on your tax return, see Self-employed at the beginning of this chapter. Do active military pay taxes Required Records for Clients or Customers If you are a client or customer, you generally do not have to keep records to prove the reimbursements or allowances you give, in the course of your business, to an independent contractor for travel or gift expenses incurred on your behalf. Do active military pay taxes However, you must keep records if: You reimburse the contractor for entertainment expenses incurred on your behalf, and The contractor adequately accounts to you for these expenses. Do active military pay taxes Contractor adequately accounts. Do active military pay taxes   If the contractor adequately accounts to you for entertainment expenses, you (the client or customer) must keep records documenting each element of the expense, as explained in chapter 5 . Do active military pay taxes Use your records as proof for a deduction on your tax return. Do active military pay taxes If entertainment expenses are accounted for separately, you are subject to the 50% limit on entertainment. Do active military pay taxes If the contractor adequately accounts to you for reimbursed amounts, you do not have to report the amounts on an information return. Do active military pay taxes Contractor does not adequately account. Do active military pay taxes    If the contractor does not adequately account to you for allowances or reimbursements of entertainment expenses, you do not have to keep records of these items. Do active military pay taxes You are not subject to the 50% limit on entertainment in this case. Do active military pay taxes You can deduct the reimbursements or allowances as payment for services if they are ordinary and necessary business expenses. Do active military pay taxes However, you must file Form 1099-MISC to report amounts paid to the independent contractor if the total of the reimbursements and any other fees is $600 or more during the calendar year. Do active military pay taxes How To Use Per Diem Rate Tables This section contains information about the per diem rate substantiation methods available and the choice of rates you must make for the last 3 months of the year. Do active military pay taxes The Two Substantiation Methods High-low method. Do active military pay taxes   IRS notices list the localities that are treated under the high-low substantiation method as high-cost localities for all or part of the year. Do active military pay taxes Notice 2012–63, available at www. Do active military pay taxes irs. Do active military pay taxes gov/irb/2012–42_IRB/ar12. Do active military pay taxes html, lists the localities that are eligible for $242 ($65 meals and incidental expenses (M&IE)) per diem, effective October 1, 2012. Do active military pay taxes For travel on or after October 1, 2012, all other localities within CONUS are eligible for $163 ($52 M&IE) per diem under the high-low method. Do active military pay taxes   Notice 2013–65, available at www. Do active military pay taxes irs. Do active military pay taxes gov/pub/irs-drop/n-13–65. Do active military pay taxes pdf, lists the localities that are eligible for $251 ($65 M&IE) per diem, effective October 1, 2013. Do active military pay taxes For travel on or after October 1, 2013, the per diem for all other localities increased to $170 ($52 M&IE). Do active military pay taxes Regular federal per diem rate method. Do active military pay taxes   Regular federal per diem rates are published by the General Services Administration (GSA). Do active military pay taxes Both tables include the separate rate for meals and incidental expenses (M&IE) for each locality. Do active military pay taxes The rates listed for FY2013 at www. Do active military pay taxes gsa. Do active military pay taxes gov/perdiem are effective October 1, 2012 and those listed for FY2014 are effective October 1, 2013. Do active military pay taxes The standard rate for all locations within CONUS not specifically listed for FY2013 is $123 ($77 for lodging and $46 for M&IE). Do active military pay taxes For FY2014, this rate increased to $129 ($83 for lodging and $46 for M&IE). Do active military pay taxes Transition Rules The transition period covers the last 3 months of the calendar year, from the time that new rates are effective (generally October 1) through December 31. Do active military pay taxes During this period, you generally may change to the new rates or finish out the year with the rates you had been using. Do active military pay taxes High-low method. Do active military pay taxes   If you use the high-low substantiation method, when new rates become effective (generally October 1) you can either continue with the rates you used for the first part of the year or change to the new rates. Do active military pay taxes However, you must continue using the high-low method for the rest of the calendar year (through December 31). Do active military pay taxes If you are an employer, you must use the same rates for all employees reimbursed under the high-low method during that calendar year. Do active military pay taxes   The new rates and localities for the high-low method are included each year in a notice that is generally published in mid-to-late-September. Do active military pay taxes You can find the notice in the weekly Internal Revenue Bulletin (IRB) on the Internet at www. Do active military pay taxes irs. Do active military pay taxes gov/irb. Do active military pay taxes Federal per diem rate method. Do active military pay taxes   New CONUS per diem rates become effective on October 1 of each year and remain in effect through September 30 of the following year. Do active military pay taxes Employees being reimbursed under the per diem rate method during the first 9 months of a year (January 1–September 30) must continue under the same method through the end of that calendar year (December 31). Do active military pay taxes However, for travel by these employees from October 1 through December 31, you can choose to continue using the same per diem rates or use the new rates. Do active military pay taxes   The new federal CONUS per diem rates are published each year, generally early in September, on the Internet. Do active military pay taxes Go to www. Do active military pay taxes gsa. Do active military pay taxes gov/perdiem. Do active military pay taxes Per diem rates for localities listed for FY2014 may change at any time. Do active military pay taxes To be sure you have the most current rate, check www. Do active military pay taxes gsa. Do active military pay taxes gov/perdiem. Do active military pay taxes Completing Forms 2106 and 2106-EZ This section briefly describes how employees complete Forms 2106 and 2106-EZ. Do active military pay taxes Table 6-1 explains what the employer reports on Form W-2 and what the employee reports on Form 2106. Do active military pay taxes The instructions for the forms have more information on completing them. Do active military pay taxes If you are self-employed, do not file Form 2106 or 2106-EZ. Do active military pay taxes Report your expenses on Schedule C (Form 1040), Schedule C-EZ (Form 1040), or Schedule F (Form 1040). Do active military pay taxes See the instructions for the form that you must file. Do active military pay taxes Form 2106-EZ. Do active military pay taxes   You may be able to use the shorter Form 2106-EZ to claim your employee business expenses. Do active military pay taxes You can use this form if you meet all the following conditions. Do active military pay taxes You are an employee deducting ordinary and necessary expenses attributable to your job. Do active military pay taxes You were not reimbursed by your employer for your expenses (amounts included in box 1 of your Form W-2 are not considered reimbursements). Do active military pay taxes If you are claiming car expenses, you are using the standard mileage rate. Do active military pay taxes Car expenses. Do active military pay taxes   If you used a car to perform your job as an employee, you may be able to deduct certain car expenses. Do active military pay taxes These are generally figured on Form 2106, Part II, and then claimed on Form 2106, Part I, line 1, Column A. Do active military pay taxes Car expenses using the standard mileage rate can also be figured on Form 2106-EZ by completing Part II and Part I, line 1. Do active military pay taxes Information on use of cars. Do active military pay taxes   If you claim any deduction for the business use of a car, you must answer certain questions and provide information about the use of the car. Do active military pay taxes The information relates to the following items. Do active military pay taxes Date placed in service. Do active military pay taxes Mileage (total, business, commuting, and other personal mileage). Do active military pay taxes Percentage of business use. Do active military pay taxes After-work use. Do active military pay taxes Use of other vehicles. Do active military pay taxes Whether you have evidence to support the deduction. Do active military pay taxes Whether or not the evidence is written. Do active military pay taxes Employees must complete Form 2106, Part II, Section A, or Form 2106-EZ, Part II, to provide this information. Do active military pay taxes Standard mileage rate. Do active military pay taxes   If you claim a deduction based on the standard mileage rate instead of your actual expenses, you must complete Form 2106, Part II, Section B. Do active military pay taxes The amount on line 22 (Section B) is carried to Form 2106, Part I, line 1. Do active military pay taxes In addition, on Part 1, line 2, you can deduct parking fees and tolls that apply to the business use of the car. Do active military pay taxes If you file Form 2106-EZ, complete Part I, line 1, for the standard mileage rate and line 2 for parking fees and tolls. Do active military pay taxes See Standard Mileage Rate in chapter 4 for information on using this rate. Do active military pay taxes Actual expenses. Do active military pay taxes   If you claim a deduction based on actual car expenses, you cannot use Form 2106-EZ. Do active military pay taxes You must complete Form 2106, Part II, Section C. Do active military pay taxes In addition, unless you lease your car, you must complete Section D to show your depreciation deduction and any section 179 deduction you claim. Do active military pay taxes   If you are still using a car that is fully depreciated, continue to complete Section C. Do active military pay taxes Since you have no depreciation deduction, enter zero on line 28. Do active military pay taxes In this case, do not complete Section D. Do active military pay taxes Car rentals. Do active military pay taxes   If you claim car rental expenses on Form 2106, line 24a, you may have to reduce that expense by an inclusion amount as described in chapter 4. Do active military pay taxes If so, you can show your car expenses and any inclusion amount as follows. Do active military pay taxes Compute the inclusion amount without taking into account your business use percentage for the tax year. Do active military pay taxes Report the inclusion amount from (1) on Form 2106, Part II, line 24b. Do active military pay taxes Report on line 24c the net amount of car rental expenses (total car rental expenses minus the inclusion amount computed in (1)). Do active military pay taxes The net amount of car rental expenses will be adjusted on Form 2106, Part II, line 27, to reflect the percentage of business use for the tax year. Do active military pay taxes Transportation expenses. Do active military pay taxes   Show your transportation expenses that did not involve overnight travel on Form 2106, line 2, Column A, or on Form 2106-EZ, Part I, line 2. Do active military pay taxes Also include on this line business expenses you have for parking fees and tolls. Do active military pay taxes Do not include expenses of operating your car or expenses of commuting between your home and work. Do active military pay taxes Employee business expenses other than meals and entertainment. Do active military pay taxes   Show your other employee business expenses on Form 2106, lines 3 and 4, Column A, or Form 2106-EZ, lines 3 and 4. Do active military pay taxes Do not include expenses for meals and entertainment on those lines. Do active military pay taxes Line 4 is for expenses such as gifts, educational expenses (tuition and books), office-in-the-home expenses, and trade and professional publications. Do active military pay taxes    If line 4 expenses are the only ones you are claiming, you received no reimbursements (or the reimbursements were all included in box 1 of your Form W-2), and the Special Rules discussed later do not apply to you, do not complete Form 2106 or 2106-EZ. Do active military pay taxes Claim these amounts directly on Schedule A (Form 1040), line 21. Do active military pay taxes List the type and amount of each expense on the dotted lines and include the total on line 21. Do active military pay taxes Meal and entertainment expenses. Do active military pay taxes   Show the full amount of your expenses for business-related meals and entertainment on Form 2106, line 5, Column B. Do active military pay taxes Include meals while away from your tax home overnight and other business meals and entertainment. Do active military pay taxes Enter 50% of the line 8, Column B, meal and entertainment expenses on line 9, Column B. Do active military pay taxes   If you file Form 2106-EZ, enter the full amount of your meals and entertainment on the line to the left of line 5 and multiply the total by 50%. Do active military pay taxes Enter the result on line 5. Do active military pay taxes Hours of service limits. Do active military pay taxes   If you are subject to the Department of Transportation's “hours of service” limits (as explained earlier under Individuals subject to “hours of service” limits in chapter 2), use 80% instead of 50% for meals while away from your tax home. Do active military pay taxes Reimbursements. Do active military pay taxes   Enter on Form 2106, line 7 (you cannot use Form 2106-EZ) the amounts your employer (or third party) reimbursed you that were not reported to you in box 1 of your Form W-2. Do active military pay taxes This includes any amount reported under code L in box 12 of Form W-2. Do active military pay taxes Allocating your reimbursement. Do active military pay taxes   If you were reimbursed under an accountable plan and want to deduct excess expenses that were not reimbursed, you may have to allocate your reimbursement. Do active military pay taxes This is necessary when your employer pays your reimbursement in the following manner: Pays you a single amount that covers meals and/or entertainment, as well as other business expenses, and Does not clearly identify how much is for deductible meals and/or entertainment. Do active military pay taxes You must allocate that single payment so that you know how much to enter on Form 2106, line 7, Column A and Column B. Do active military pay taxes Example. Do active military pay taxes Rob's employer paid him an expense allowance of $12,000 this year under an accountable plan. Do active military pay taxes The $12,000 payment consisted of $5,000 for airfare and $7,000 for meals, entertainment, and car expenses. Do active military pay taxes The employer did not clearly show how much of the $7,000 was for the cost of deductible meals and entertainment. Do active military pay taxes Rob actually spent $14,000 during the year ($5,500 for airfare, $4,500 for meals and entertainment, and $4,000 for car expenses). Do active military pay taxes Since the airfare allowance was clearly identified, Rob knows that $5,000 of the payment goes in Column A, line 7, of Form 2106. Do active military pay taxes To allocate the remaining $7,000, Rob uses the worksheet from the Instructions for Form 2106. Do active military pay taxes His completed worksheet follows. Do active military pay taxes Reimbursement Allocation Worksheet (Keep for your records)   1. Do active military pay taxes Enter the total amount of reimbursements your employer gave you that were not reported to you in box 1 of Form W-2 $7,000   2. Do active military pay taxes Enter the total amount of your expenses for the periods covered by this reimbursement 8,500   3. Do active military pay taxes Of the amount on line 2, enter your total expense for meals and entertainment 4,500   4. Do active military pay taxes Divide line 3 by line 2. Do active military pay taxes Enter the result as a decimal (rounded to at least three places) . Do active military pay taxes 529   5. Do active military pay taxes Multiply line 1 by line 4. Do active military pay taxes Enter the result here and in Column B, line 7 3,703   6. Do active military pay taxes Subtract line 5 from line 1. Do active military pay taxes Enter the result here and in Column A, line 7 $3,297 On line 7 of Form 2106, Rob enters $8,297 ($5,000 airfare and $3,297 of the $7,000) in Column A and $3,703 (of the $7,000) in Column B. Do active military pay taxes After you complete the form. Do active military pay taxes   After you have completed your Form 2106 or 2106-EZ, follow the directions on that form to deduct your expenses on the appropriate line of your tax return. Do active military pay taxes For most taxpayers, this is line 21 of Schedule A (Form 1040). Do active military pay taxes However, if you are a government official paid on a fee basis, a performing artist, an Armed Forces reservist, or a disabled employee with impairment-related work expenses, see Special Rules , later. Do active military pay taxes Limits on employee business expenses. Do active military pay taxes   Your employee business expenses may be subject to either of the limits described next. Do active military pay taxes They are figured in the following order on the specified form. Do active military pay taxes 1. Do active military pay taxes Limit on meals and entertainment. Do active military pay taxes   Certain meal and entertainment expenses are subject to a 50% limit. Do active military pay taxes If you are an employee, you figure this limit on line 9 of Form 2106 or line 5 of Form 2106-EZ. Do active military pay taxes (See 50% Limit in chapter 2. Do active military pay taxes ) 2. Do active military pay taxes Limit on miscellaneous itemized deductions. Do active military pay taxes   If you are an employee, deduct your employee business expenses (as figured on Form 2106 or 2106-EZ) on line 21 of Schedule A (Form 1040). Do active military pay taxes Most miscellaneous itemized deductions, including employee business expenses, are subject to a 2%-of-adjusted-gross-income limit. Do active military pay taxes This limit is figured on line 26 of Schedule A (Form 1040). Do active military pay taxes 3. Do active military pay taxes Limit on total itemized deductions. Do active military pay taxes   If your adjusted gross income (line 38 of Form 1040) is more than $300,000 ($150,000 if you are married filing separately), the total of certain itemized deductions, including employee business expenses, may be limited. Do active military pay taxes See your form instructions for information on how to figure this limit. Do active military pay taxes Special Rules This section discusses special rules that apply only to Armed Forces reservists, government officials who are paid on a fee basis, performing artists, and disabled employees with impairment-related work expenses. Do active military pay taxes Armed Forces Reservists Traveling More Than 100 Miles From Home If you are a member of a reserve component of the Armed Forces of the United States and you travel more than 100 miles away from home in connection with your performance of services as a member of the reserves, you can deduct your travel expenses as an adjustment to gross income rather than as a miscellaneous itemized deduction. Do active military pay taxes The amount of expenses you can deduct as an adjustment to gross income is limited to the regular federal per diem rate (for lodging, meals, and incidental expenses) and the standard mileage rate (for car expenses) plus any parking fees, ferry fees, and tolls. Do active military pay taxes See Per Diem and Car Allowances , earlier, for more information. Do active military pay taxes Any expenses in excess of these amounts can be claimed only as a miscellaneous itemized deduction subject to the 2% limit. Do active military pay taxes Member of a reserve component. Do active military pay taxes   You are a member of a reserve component of the Armed Forces of the United States if you are in the Army, Navy, Marine Corps, Air Force, or Coast Guard Reserve; the Army National Guard of the United States; the Air National Guard of the United States; or the Reserve Corps of the Public Health Service. Do active military pay taxes How to report. Do active military pay taxes   If you have reserve-related travel that takes you more than 100 miles from home, you should first complete Form 2106 or Form 2106-EZ. Do active military pay taxes Then include your expenses for reserve travel over 100 miles from home, up to the federal rate, from Form 2106, line 10, or Form 2106-EZ, line 6, in the total on Form 1040, line 24. Do active military pay taxes Subtract this amount from the total on Form 2106, line 10, or Form 2106-EZ, line 6, and deduct the balance as an itemized deduction on Schedule A (Form 1040), line 21. Do active military pay taxes   You cannot deduct expenses of travel that does not take you more than 100 miles from home as an adjustment to gross income. Do active military pay taxes Instead, you must complete Form 2106 or 2106-EZ and deduct those expenses as an itemized deduction on Schedule A (Form 1040), line 21. Do active military pay taxes Officials Paid on a Fee Basis Certain fee-basis officials can claim their employee business expenses whether or not they itemize their other deductions on Schedule A (Form 1040). Do active military pay taxes Fee-basis officials are persons who are employed by a state or local government and who are paid in whole or in part on a fee basis. Do active military pay taxes They can deduct their business expenses in performing services in that job as an adjustment to gross income rather than as a miscellaneous itemized deduction. Do active military pay taxes If you are a fee-basis official, include your employee business expenses from Form 2106, line 10, or Form 2106-EZ, line 6, in the total on Form 1040, line 24. Do active military pay taxes Expenses of Certain Performing Artists If you are a performing artist, you may qualify to deduct your employee business expenses as an adjustment to gross income rather than as a miscellaneous itemized deduction. Do active military pay taxes To qualify, you must meet all of the following requirements. Do active military pay taxes During the tax year, you perform services in the performing arts as an employee for at least two employers. Do active military pay taxes You receive at least $200 each from any two of these employers. Do active military pay taxes Your related performing-arts business expenses are more than 10% of your gross income from the performance of those services. Do active military pay taxes Your adjusted gross income is not more than $16,000 before deducting these business expenses. Do active military pay taxes Special rules for married persons. Do active military pay taxes   If you are married, you must file a joint return unless you lived apart from your spouse at all times during the tax year. Do active military pay taxes If you file a joint return, you must figure requirements (1), (2), and (3) separately for both you and your spouse. Do active military pay taxes However, requirement (4) applies to your and your spouse's combined adjusted gross income. Do active military pay taxes Where to report. Do active military pay taxes   If you meet all of the above requirements, you should first complete Form 2106 or 2106-EZ. Do active military pay taxes Then you include your performing-arts-related expenses from Form 2106, line 10, or Form 2106-EZ, line 6, in the total on Form 1040, line 24. Do active military pay taxes   If you do not meet all of the above requirements, you do not qualify to deduct your expenses as an adjustment to gross income. Do active military pay taxes Instead, you must complete Form 2106 or 2106-EZ and deduct your employee business expenses as an itemized deduction on Schedule A (Form 1040), line 21. Do active military pay taxes Impairment-Related Work Expenses of Disabled Employees If you are an employee with a physical or mental disability, your impairment-related work expenses are not subject to the 2%-of-adjusted-gross-income limit that applies to most other employee business expenses. Do active military pay taxes After you complete Form 2106 or 2106-EZ, enter your impairment-related work expenses from Form 2106, line 10, or Form 2106-EZ, line 6, on Schedule A (Form 1040), line 28, and identify the type and amount of this expense on the dotted line next to line 28. Do active military pay taxes Enter your employee business expenses that are unrelated to your disability from Form 2106, line 10, or Form 2106-EZ, line 6, on Schedule A (Form 1040), line 21. Do active military pay taxes Impairment-related work expenses are your allowable expenses for attendant care at your workplace and other expenses in connection with your workplace that are necessary for you to be able to work. Do active military pay taxes You are disabled if you have: A physical or mental disability (for example, blindness or deafness) that functionally limits your being employed, or A physical or mental impairment (for example, a sight or hearing impairment) that substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, learning, or working. Do active military pay taxes You can deduct impairment-related expenses as business expenses if they are: Necessary for you to do your work satisfactorily, For goods and services not required or used, other than incidentally, in your personal activities, and Not specifically covered under other income tax laws. Do active military pay taxes Example 1. Do active military pay taxes You are blind. Do active military pay taxes You must use a reader to do your work. Do active military pay taxes You use the reader both during your regular working hours at your place of work and outside your regular working hours away from your place of work. Do active military pay taxes The reader's services are only for your work. Do active military pay taxes You can deduct your expenses for the reader as business expenses. Do active military pay taxes Example 2. Do active military pay taxes You are deaf. Do active military pay taxes You must use a sign language interpreter during meetings while you are at work. Do active military pay taxes The interpreter's services are used only for your work. Do active military pay taxes You can deduct your expenses for the interpreter as business expenses. Do active military pay taxes Prev  Up  Next   Home   More Online Publications